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Stochastic costly state verification and dynamic contracts

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  • Popov, Latchezar

Abstract

I consider a dynamic costly state verification environment in which a risk-averse agent enters into a contract with a risk-neutral principal. The agent has random income which is unknown to the principal but can be verified at a cost. The principal can commit to executing random verifications.

Suggested Citation

  • Popov, Latchezar, 2016. "Stochastic costly state verification and dynamic contracts," Journal of Economic Dynamics and Control, Elsevier, vol. 64(C), pages 1-22.
    • Handle: RePEc:eee:dyncon:v:64:y:2016:i:c:p:1-22
    DOI: 10.1016/j.jedc.2015.12.006
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    References listed on IDEAS

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    1. Dilip Mookherjee & Ivan Png, 1989. "Optimal Auditing, Insurance, and Redistribution," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 104(2), pages 399-415.
    2. Cheng Wang, 2005. "Dynamic costly state verification," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 25(4), pages 887-916, June.
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    7. Phelan Christopher, 1995. "Repeated Moral Hazard and One-Sided Commitment," Journal of Economic Theory, Elsevier, vol. 66(2), pages 488-506, August.
    8. Townsend, Robert M., 1988. "Information constrained insurance : The revelation principle extended," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 411-450.
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    Cited by:

    1. Cheng Wang, 2005. "Dynamic costly state verification," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 25(4), pages 887-916, June.
    2. Achim, Peter & Knoepfle, Jan, 2024. "Relational enforcement," Theoretical Economics, Econometric Society, vol. 19(2), May.
    3. Deniz Kattwinkel & Justus Preusser, 2025. "The Division of Surplus and the Burden of Proof," Papers 2501.14686, arXiv.org, revised Oct 2025.

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    More about this item

    Keywords

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    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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